Sunday, July 08, 2007

In the oil industry, Smuggling may deter new investments

The worsening problem of smuggling enmeshing the oil industry is seen hampering inflow of more investments in the sector.

This was an opinion shared by Pilipinas Shell country chairman Edgar O. Chua as he called on the government to intensify efforts to rein in such illegal activities pervasive in the industry.

In line with this direction, he proposed the creation of a task force that shall focus on solving, and possibly ending, the industry’s smuggling problem; as he noted that such activities do not only deny the government of much-needed taxes but also endangers consumers because of questionable quality of the smuggled oil products.

Chua said he put forward such proposal in a recent meeting with Energy Secretary Raphael P.M. Lotilla; citing that competitive forces will not reign rightly in the industry if rampant cases of smuggling are not resolved.

The Shell executive explained that competitive forces in the industry can be distorted by smuggling "because they can underdeclare their value and volume;" consequently, these considered pseudo-industry players can sell their pump products cheaper; even at P20 per liter; which is almost half the price of gasoline products.

The Department of Energy (DoE) has initiated various efforts in the past to solve oil smuggling; but it had its hands tied because this is a responsibility it shares with other government agencies, like the Department of Interior and Local Government (DILG) and the Bureau of Customs, among others.

"We should recognize that it is happening. The industry and the DoE can’t do it alone. A no non-sense task force should be in place to target these oil smugglers," Chua said.

For several times in the past, the energy department has been constantly challenged to make public the entities or companies involved in oil smuggling; as this could serve as an initial step to restrain the perpetrators.

A study previously undertaken by the Asian Institute of Management (AIM) indicated that the government incurred P1.1 billion of foregone revenues from 1999 to 2001 alone because of smuggling.

Since then, it was noted that smuggling activities have not been diffused; instead, it just worsen over the years.

At that time, the energy department thought of pushing for a penal cause on smuggling (with extreme penalties) that shall be incorporated as part of the amendments in the Oil Deregulation Law.

Previous studies have also listed several hotspots for oil smuggling; including the ports of Subic, Bataan, Manila Bay, Cebu, General Santos and Davao plus free ports and economic zones which are accorded special privileges.

The other channels identified are through the depots in the coastal areas and barges plying the Pasig River; and at the distribution level, through distributors selling to independent traders, small retail outlets or makeshift drum-pump retail stations with huge price discounts. (MMV)